Microeconomics - Test 3
If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is
2,500
Refer to the data. The Herfindahl index for this industry is
2,950
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $32, the competitive firm should produce
8 units at an economic profit of $16
Refer to the provided graph for a purely competitive firm in the short run. Profits would be maximized if the firm produces which level of output?
B
Which of the following distinguishes the short run from the long run in pure competition?
Firms can enter and exit the market in the long run but not in the short run.
Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5 and 4 percent. The remaining 30 firms each have market shares of 2 percent. The Herfindahl index for this industry is
HHI = 414
In the United States cartels are
in violation of the antitrust laws.
As a general rule, oligopoly exists when the four-firm concentration ratio
is 40 percent or more.
An industry having a four-firm concentration ratio of 85 percent
is an oligopoly.
The marginal revenue curve of a purely competitive firm
is horizontal at the market price
Refer to the above graph of representative firm and monopolistic competition. If curve (2) represents ATC and line (3) represents demand, then we can conclude that the industry
is in long-run equilibrium.
A significant difference between a monopolistically competitive firm in a purely competitive firm is that the
latter's demand curve is perfectly elastic.
Assume a purely competitive increasing-cost industry is in the long-run equilibrium. If a decline and demand occurs, firms will
leave the industry, price will fall, and quantity produced will fall.
Monopolistic competition means
many firms producing differentiated products.
Curve (2) in the diagram is a purely competitive firm's
marginal revenue curve
The monopolistically competitive seller maximizes profit by producing at the point where
marginal revenue equals marginal cost MR = MC
When a firm is maximizing profit, it will necessarily be
maximizing the difference between total revenue and total cost
An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of
monopolistic competition
Mutual interdependence means that each oligopolistic firm
must consider the reactions of its rivals when it determines its price policy.
Which of the following is a unique feature of oligopoly?
mutual interdependence
If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then
new firms will enter this market.
Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because
of product differentiation and consequent product promotion activities.
A purely competitive firm is precluded from making economic profits in the long run because
of unimpeded entry to the industry.
A competitive firm will maximize profits at that output at which
total revenue exceeds total cost by the greatest amount.
Curve (3) in the diagram is a purely competitive firm's
total revenue curve
The total revenue of a purely competitive firm from selling six units of output is $48. Based on this information, the unit price of the output must be
$8
If columns (1) and (3) of the demand data shown are this firm's demand schedule, the profit-maximizing price will be
$9.
Pure competition results in a lower price for identical output level compared to those in monopolistic competition.
False
The long-run market supply curve would be downward sloping if the representative firms'
ATV curves shift down as the industry expands.
The kinked-demand curve model shows that oligopolistic firms tend to change their prices frequently.
False
Which of the following outcomes is consistent with a purely competitive market in the long-run equilibrium?
Combined consumer and producer surplus will be maximized.
Productive efficiency refers to
Cost minimization, where P= minimum ATC
Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium output will be
D.
The automobile, household appliance, an automobile tire industries are all illustrations of
Differentiated oligopoly.
In the long-run, monopolistically competitive firms make normal profits because they are forced to operate at the minimum point on their average total cost curve.
False
Potential entry by new firms and competition from imports tend to worsen the economic inefficiency in an oligopoly.
False
Monopolistic competition resembles per competition because
In both industries barriers to entry or either weak or nonexistent.
Which of the following is true concerning purely competitive industries?
In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
A monopolistically competitive firm's marginal revenue curve
Is downsloping in lies below the demand curve.
A purely competitive firm can be identified by the fact that
Its average revenue equals marginal revenue
Allocative efficiency occurs when the
Marginal cost equals the marginal benefit to society
I'm which set of market models are there the most significant barriers to entry?
Oligopoly and pure monopoly
Monopolistic competition is characterized by firms
Producing differentiated products
The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that
Product price is constant on all levels of output
The accompanying graphs are for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that
Profits will decrease
Refer to the diagram. This firm's demand and marginal revenue curves are based on the assumption that
Rivals will ignore a price increase but match a price decrease.
Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates in monopolistic competitor?
Subway Sandwiches
Which of the following is not a necessary characteristic of a purely competitive industry?
The industry or market demand is highly elastic.
In a purely competitive industry,
There may be economic profits in the short run but not in the long run.
As firms exit from a monopolistically competitive industry in the long run, the remaining firms' profits will begin to rise.
True
The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.
True
The excess capacity problem associated with monopolistic competition implies that fewer firms good produce the same industry and put out a lower total cost.
True
The operation of the invisible hand means the pursuit of private interest promote social interest in pure competition
True
Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is always equal to the
Unit price
If a firm in a purely competitive industry is confronted with an equilibrium price of $5, it's marginal revenue
Will also be $5
Oligopolistic industries are characterized by
a few dominant firms and substantial entry barriers.
Which constitutes an obstacle to collusion among oligopolists?
a large number of firms
A breakdown in price leadership leading to successive rounds of price cuts is known as
a price war
Refer to the diagram. In short-run equilibrium, the monopolistically competitive firm shown will set its price
above ATC
OPEC provides an example of
an international cartel.
Economists would describe the U.S. automobile industry as
an oligopoly
Which of the following is the best example of oligopoly?
automobile manufacturing
Refer to the diagram, which pertains to a purely competitive firm. Curve C represents
average revenue and marginal revenue
Which of the following is not a basic characteristic of pure competition?
considerable nonprice competition
The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that when this market reaches equilibrium, the marginal
cost equals marginal benefit.
Secret conspiracies to fix prices are examples of
covert collusion
An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is
downward sloping
The long-run supply curve under pure competition will be
downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry.
The mutual interdependence that characterizes oligopoly arises because
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
If the competitive firm depicted in the diagram produces output Q, it will
earn a normal profit
Oligopolistic firms engage in collusion to
earn greater profits
In the long-run equilibrium a purely competitive firm will operate where price is
equal to MR, MC, and minimum ATC.
The study of how people behave and decide in strategic situations is called
game theory
A two-player game in which one player's gain is not completely offset by the other player's loss is called a
positive-sum game
The goal of product differentiation in advertising in monopolistic competition is to make
price less of a factor and product differences more of a factor in consumer purchases.
Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because
product differentiation allows each firm some degree of monopoly power.
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic
profit of $480.
If a firm has at least some control over the price of its product, then the firm cannot be in which market model?
pure competition
In which market model would there be a unique product for which there are no close substitutes?
pure monopoly
Local electric or gas utility companies mostly operate in which market structure?
pure monopoly
In which of the following market models do demand and marginal revenue diverge?
pure monopoly, oligopoly, and monopolistic competition
In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?
pure monopoly, oligopoly, monopolistic competition, pure competition.
Long-run competitive equilibrium
results in zero economic profits.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If product price is $25, the firm will
shut down and incur a $50 loss.
Allocative efficiency means that
society's scarce resources are used to produce products that align with consumer preferences.
If firms enter a purely competitive industry, then in the long run this change will shift the industry
supply curve to the right, and the individual firm's demand curve will shift down.
In the context of analyzing economic efficiency, we can interpret the market supply curve to be showing
the marginal opportunity cost to produce each unit of the product.
Monopolistically competitive and purely competitive industries are similar in that
there are few, if any, barriers to entry.
One difference between monopolistic competition in pure competition is that
there is some control over price in monopolistic competition.
Economists use the term imperfect competition to describe
those markets that are not purely competitive.